economic contribution of the ontario farm sector€¦ · economic contribution of the farm sector...

Economic Contribution of the Ontario Farm Sector

Presentation to

By John Groenewegen

Presented by John Groenewegen

JRG Consulting Group

November 25, 2013

Ontario Agriculture

What does this have to do with farming?

Nov. 25, 2013 2 Farm Sector Economic Contribution

Ontario Agriculture

What does this have to do with farming? Agricultural input suppliers depend on upstream industries


Ontario Farmers Spend Over $11 billion on Inputs

Spending by farmers creates economic activity


Farm Sector Output of $11.5 Billion Generates Economy Activity

Farm output and expenditures by famers are inseparable – one causes the other


Economic Contribution of the Ontario Farm Sector

Estimate the economic contribution of the Ontario farm sector to the Ontario economy in 2012, using measures such as valued added, employment, and taxes generated by the resulting economic activity generated by farm sector output;

Estimate the portion of the Ontario farm sector’s contribution that occurs within the rural economy and the overall importance of the farm economy to Ontario’s rural economy.

Estimate the economic contribution of the Ontario agri-food sector in 2012, which is measured as the output of Ontario’s food and beverage manufacturers


The Farm Sector is Part of a Larger Supply Chain

Nov. 25, 2013 7

Each part of the chain is dependent on other parts of the supply chain

Farm Sector Economic Contribution

Farm Output ($11.5 billion)

Inputs

Agri-Food Sector Output ($40.0 billion)

Shipments to Food Distribution and Export Markets

Non-Farm Inputs

Economic Impact of the Farm Sector

Economic Impact of Food Processing and Manufacturing

One View of Importance of the Agri-Food Economy

1. Farm sector employment was 94,200 in 2012 which is 1.4% of provincial employment of 6.8 million;

2. When all agri-food sectors are included, total employment is 10.9% of province wide employment;

3. Farm sector’s province wide share of GDP is less than the employment value, reflecting lower value added per employee than in other business sectors.

Nov. 25, 2013 8

Other sectors include input suppliers,

warehousing, food distribution, and food

retail.


SectorsShare of

Province Wide GDP

Share of Province Wide

EmploymentFarm 0.7% 1.4%Food and beverage manufacturing 1.9% 1.4%Other sectors linked to agriculture 3.3% 8.1%Total agriculture and food 5.9% 10.9%

An Overview of Farm Sector Performance, 2012

1. Farm sector output was valued at $11.8 billion in 2012, with receipts from the market place $11.5 billion;

2. Contribution (or EBITDA) was $2.9 billion, which can be used for payment of interest, debt payments, investments, and savings;

3. Valued added retained by the farm sector was an estimated $4.8 billion in 2012 4. Value added includes wages, rent, interest, depreciation on capital items, and

profits. Nov. 25, 2013 9

Value added (GDP) is a measure of the net

contribution of an industry or sector to the economy.


The Farm Sector Has Many Linkages into the Economy

Nov. 25, 2013 10

1. The farm sector has many linkages to other business sectors;

2. Farm sector output sustains food processing activity with its $40 billion in shipment value;

3. Ontario agri-food products are a major supply source to the $63 billion in sales of food products to Ontario consumers;

4. Linkages with upstream suppliers are used to measure the economic contribution of the farm sector


Processing & Food Manufacturing

$39.7 B. in shipments ($13.3 B. – meat & dairy)

~ $5 billion from agr.

Exports of Primary Farm Products

$2.3 B in crops $0.2 B. in live animals

Crop Production $6.2 B. value of production

Inputs Supplied into Primary Production $8.9 B. of operating input purchases (excluding interest and depreciation)

Feed Manufacturing $1.5 B. value of purchases

Livestock and Poultry Production $5.3 B. value of production

Food Service Sector $20.1 B. sales

~ $6.4 B. purchases (of agri-food products)

Processed Product Exports

$8.3 B. in shipments

Retail Sector $38.1 B. sales


Imports $19.8 B.

Other Foodservice Sales $5.2 B. sales


Net to Other Provinces ~ $5.6 B. in shipments

Farm Output $11.5 B. in farm value

Farm Product within Canada Shipments

$9.0 B. in value

Minimally Processed Farm

Products ~ $5 billion from agr.

Farming Has Many Linkages into the Economy

The economic multiplier effect resulting from the economic linkages with suppliers: 1. The initial expenditures on equipment, materials and labour are generally

referred to as the direct costs of operation - the initial (direct) effects; 2. Subsequent purchases by suppliers of materials and services to sustain the

original and derivative expenditures - the indirect effects; and 3. The induced effects that emerge when farm operators and workers in the

sectors stimulated by initial and indirect expenditures spend their additional incomes on consumer goods and services.

A dollar spent on producing primary agricultural products circulates and re-circulates within the economy, multiplying the effects of the original

expenditures on overall economic activity. This process is referred to as the economic multiplier effect.


Farm Sector Economic Contribution – Total Output

Nov. 25, 2013 12

This economic impact is based on backward linkages – purchases by the farm sector on inputs and expenditures by the farm household. It does not include any economic impact

associated with food processors adding value to farm products.


The $11.8 billion output of the farm economy results in $26.6 billion of economic activity throughout the province.

Economic ImpactInitial Expenditure ($ billion) $11.8Gross Output ($ billion) Direct $11.8 Indirect & Induced $14.8 Total $26.6 Multiplier 2.25

Farm Sector Economic Contribution – Value Added

Nov. 25, 2013 13

Value Added– This figure represents net output generated by the initial expenditures in the province. It is typically the sum of wages, rent, interest, depreciation, and profits.


Farm sector output contributed to $13.7 billion in province wide value added (GDP), which is 2% of Ontario’s GDP.

Economic ImpactInitial Expenditure ($ billion) $11.8Value Added ($ billion) Direct $5.2 Indirect & Induced $8.5 Total $13.7 Multiplier 1.16

Farm Sector Economic Contribution – Employment

Nov. 25, 2013 14

Employment – This refers to the total person years (full-time equivalent jobs) generated by an increase in output.


Farm sector output contributed to an estimated 157,829 jobs throughout the Ontario economy, which is > 2.3% of provincial employment, (and much larger than employment on the farm).

More jobs are generated beyond the farm gate than within the farm sector.

Economic ImpactInitial Expenditure ($ billion) $11.8Wages & Salaries ($ billion) Direct $4.1 Indirect & Induced $4.0 Total $8.1Employment Direct 75,607 Indirect & Induced 82,222 Total 157,829 Multiplier 2.09

Farm Sector Economic Contribution – Tax Revenues

Nov. 25, 2013 15

Total taxes of $3.9 billion is 34% of the original output generated by the farm sector.


Farm sector output and the associated economic activity in the province contributed to an estimated $3.9 billion in collected tax revenues across the three levels of government

Federal Provincial Local Total($ billion) ($ billion) ($ billion) ($ billion)

Personal Income Tax $1.4 $0.8 $2.2Corporate Profit Taxes $0.5 $0.3 $0.8Property & Bus. Tax $0.4 $0.4Harmonized Sales Tax $0.2 $0.3 $0.4Total $2.1 $1.4 $0.4 $3.9

Farm Sector Economic Contribution – Summary

Nov. 25, 2013 16

Initial expenditures by Ontario farmers of $11.8 billion generate $26.6 billion in mostly upstream transactions throughout the province, which results in economy wide GDP of $13.7 billion, of which $8.1 billion are payments to labour (and 157,829 jobs).

All levels of government receive $3.9 billion in tax revenue due to this economic activity.


Economic Contribution of the Farm Sector in Rural Ontario

Nov. 25, 2013 17

Based on 70% of farm sector employment occurring in rural Ontario, and based on defensible assumptions, 58% of the measured employment impact (due to farm sector output) occurs in rural Ontario, and 56% of GDP that is retained in the province occurs in rural Ontario.

Large towns and urban areas benefit from agricultural production (this is prior to any consideration of the impact of downstream activities such as food processing).


Economic Impact Area All Ontario Rural Ontario Rural ShareEmployment 157,829 92,063 58%GDP ($ billion) $13.7 $7.7 56%

Statistics Canada reports that 70% of farm sector employment is in rural

Ontario

The Farm Sector and Rural Ontario

Nov. 25, 2013 18

After accounting for the economic contribution of the farm sector in rural Ontario, 12.3% of GDP that is retained with rural Ontario can be attributed to the farm economy (this compares to 2% for all of Ontario).

Similarly, 10.1% of rural employment can be directly and indirectly attributed to the farm economy (versus 2.3% across the province).


Item All RuralRural Farm

Sector ValueRural Farm

Share of Total

EstimatedShare of Rural

EconomyRural GDP ($ billion) $62.7 $3.3 5.3% $7.7 12.3%Rural Employment 909,000 65,600 7.2% 92,063 10.1%

Economic Contribution of Farm Sector to Rural Economy

Food Processing and Farming Are Interdependent

Nov. 25, 2013 19

Each part of the chain is dependent on other parts of the supply chain Farm Sector Economic Contribution


Inputs



Non-Farm Inputs

Economic Impact of the Farm Sector

Economic Impact of Food Processing and Manufacturing

Food Manufacturing Sector Economic Contribution

Nov. 25, 2013 20

Expenditures by food manufacturers generate $53.7 billion in upstream transactions throughout the province (including purchases from farmers), which results in economy wide GDP of $21.3 billion, of which $12.4 billion are payments to labour.

Output in this level of the supply chain accounts for 3.2% of Ontario’s GDP and 4.2% of employment

All levels of government receive $6.3 billion in tax revenue due to this economic activity.


Heinz to close Ontario plant, leaving 740 out of work

Nov. 25, 2013 21

What is the economic impact of Heinz closing the plant doors?


Heinz to close Ontario plant, leaving 740 out of work

Nov. 25, 2013 22

Impact based on the results of our analysis and Statistics Canada data on the value of shipments per employee in fruit and vegetable processing sector


Potential impact of closure: ~ $750 million in economic activity; ~ $300 million of provincial GDP; ~ 2,300 direct and indirect jobs; ~ $90 million in tax revenues.

Economic Contribution of Ontario Agriculture

Nov. 25, 2013 23

JRG Consulting Group appreciates the opportunity to provide insight on the economic importance of farming in Ontario


Summary of Economic Contribution

Nov. 25, 2013 24

The agri-food sector is an important contributor to the performance of the Ontario economy.


Inputs



Non-Farm Inputs

Gross output - $26.6 B. GDP (value added) - $13.7 B. Wages & salaries - $8.1 B. Employment – 157,829 Tax revenues - $3.9 B.

Gross output - $53.7 B. GDP (value added) - $21.3 B. Wages & salaries - $12.4 B. Employment – 284,567 Tax revenues - $6.3 B.


Output in this level of the supply chain accounts for 3.2% of Ontario’s GDP and

4.2% of employment

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